The Kenyan government has urged all its citizens to leave Iraq immediately.
The group linked its hostages to "US cowboy occupiers"
The announcement by government spokesman Alfred Mutua came a day after three Kenyan lorry drivers were taken hostage by an Iraqi militant group.
The group, calling itself The Holders of the Black Banners, also seized three Indians and an Egyptian.
The group said it would behead one of its hostages every 72 hours if the Kuwaiti company employing the men did not leave Iraq.
"We urge all Kenyans in Iraq to leave at once and all those in neighbouring countries, such as Kuwait and Saudi Arabia, to register with the Kenyan mission in Kuwait," Mr Mutua told a news conference in the capital, Nairobi.
He said that "Kenya has no intent of interfering with the lives of the Iraqi people and that we are discouraging our citizens from participating in work that takes them to Iraq".
Mr Mutua added that the government was working together with the Kuwaiti firm - Kuwait and Gulf Link Transport Company - to secure the hostages' release.
"We are in contact with the owner of the company and he has assured us he is doing all he can," Mr Mutua said.
Kenyan officials are quoted as saying they do not know how many Kenyans are in Iraq.
Earlier, relatives of one of the Kenyan captives, Ibrahim Khamis, appealed for his release.
"He is a good Muslim trying to support his wife and four children and the kidnappers should consider that," said his brother Faiz Khamis.
"Our brother bore no ill-will to the people of Iraq."
Earlier on Thursday, Indian Foreign Minister Natwar Singh issued an appeal asking for the three Indian hostages to be released.
The Iraqi group made its threat in a statement issued to news agencies and in a videotape aired by al-Arabiya television.
It said it would behead one of its hostages every 72 hours if the company did not leave the country.
The statement set a deadline starting at 2000 local time (1600 GMT) on Wednesday.
The militants also called on India, Kenya and Egypt - none of which are part of the US-led military coalition in Iraq - to withdraw their personnel.
Adopting new tactics?
The latest kidnappings came a day after another militant group in Iraq released Filipino truck driver Angelo de la Cruz because his country had pulled out its 51-strong peacekeeping force.
US officials see a direct link between the abductions and the decision of the Philippines government, the BBC's Middle East analyst Roger Hardy says.
He says that Americans also believe the various insurgent groups may be adopting new tactics.
After the end-of-June handover of power to an interim Iraqi government, there was a relative lull in the violence, but now the suicide bombings have resumed, and so have the kidnappings.
The new prime minister, Ayad Allawi, remains doggedly upbeat, insisting he and his team can get on top of the violence, but it looks unlikely he will get quick results, our analyst adds.